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South Africa could be a thorn in BHP’s side as it makes £31bn Anglo American bid

The world’s biggest miner faces fraught politics and complicated history weeks before key general elections

South Africa’s mining minister was campaigning in Rustenburg, the northern capital of the country’s platinum belt, when news broke of BHP’s £31bn proposal to take over Anglo American.

Five weeks before critical general elections for the ruling African National Congress government, Gwede Mantashe was quick to shoot down the approach, telling the Financial Times that South Africa’s previous experience with BHP was “not positive”. The Australian miner “never did much for South Africa,” he added.

The ANC veteran has a long history of locking horns with foreign mining operators but his barbed remarks — even as he was out championing the sector that has been crucial to propping up President Cyril Ramaphosa’s government — underscores what a sensitive matter such a takeover means for Pretoria.

Anglo, whose largest investor is South African state entity Public Investment Corporation (PIC), has spent more than $6bn in the country in the past five years. It has been a driving force behind national business efforts to help fix troubled state-owned enterprises Eskom and Transnet, implement market reforms in electricity and logistics, and revive economic growth.

Winning over the state will be paramount for BHP or any other would-be bidders. Anglo’s board said it was considering the offer, which hinges on exiting two of the company’s prized South African assets that have been laid low by the country’s rolling blackouts and freight chaos in getting iron ore to world markets.

“Anglo American is a local mining story that goes back more than 100-years in South Africa,” said Zwelakhe Mnguni, chief investment officer for the Johannesburg-based Benguela Global Fund Managers. “There are fewer and fewer companies that believe in the country, and have invested in it like Anglo. It has a rapport with the government, and understood the lay of the land, and if this vanishes, I don’t see BHP filling that gap.”

Few companies have shaped a nation’s history the way that Anglo has South Africa’s since the second half of the 20th century. BHP’s offer will come up against a legacy that began in 1917, when Ernest Oppenheimer, a German-born diamond trader, raised £1mn to found the Anglo-American Corporation to mine gold around Johannesburg.

In South African business circles, the news hit home sharply. For decades Anglo dominated corporate life, owning a large part of the Johannesburg Stock Exchange until the end of the Apartheid era, with its tentacles reaching into sugar, wider industry, and even media. The group still owns a wine estate, Vergelegen, in the hills of the Western Cape outside Cape Town. The prospect of the Anglo name vanishing from the bourse has added to a sense of gloom.

“South Africa as a country may feel it’s losing a national champion to an international foe,” said Dawid Heyl, a portfolio manager at Cape Town-based asset manager Ninety One, which holds more than 2 per cent of Anglo American.

BHP will have to overcome a complicated history in South Africa. The Melbourne-based miner demerged its operations in the country in 2015 as South32, in effect reversing its 2001 merger with Billiton. “What we remember is that it dumped coal and then created a small company called South32, which is now marginal,” Mantashe warned.

Rio Tinto, which still owns titanium dioxide miner Richards Bay Minerals in the eastern KwaZulu-Natal region, has also tried to reduce its exposure to risky jurisdictions such as South Africa.

BHP is also battling widespread sentiment that it is trying to get Anglo on the cheap. “It’s something of a cheeky offer,” Heyl said, adding that the terms needed to be improved substantially to get shareholders’ attention.

Many UK investors would be reluctant to keep shares in Anglo’s Kumba Iron Ore and its Amplats platinum unit, which BHP wants to exclude from its takeover offer, because of limits on their South African exposure. This is giving them extra impetus to demand a higher price for Anglo’s other assets to make up for the exit.

Analysts note that Anglo, which is currently cutting thousands of jobs in South Africa to become more profitable, has not been immune from government criticism. “They have stolen our money,” Mantashe said in 2013, after Amplats announced a cut of 400,000 ounces in platinum production, threatening to revoke licenses of the company that remains one of the country’s top private employers.

“The government doesn’t really know what it wants here — if they wanted jobs, it would have mollycoddled Anglo 30 years ago instead of attacking them nonstop,” said Peter Major, director at Mining for Modern Corporate Solutions. “But . . . you’ve got a bunch of inexperienced people who all have different objectives, and few of them have really been in a corporate world. So policy is very mixed here.”

PIC has a mandate to foster the country’s development including a long-term future for mines that provide jobs and skills in a country with a one-third jobless rate.

Companies buying into South Africa’s mining sector “have systematically got rid of the South African assets, so really the question we should be asking our minister is why do these companies keep on getting rid of South African assets”, said Bruce Williamson, a mining analyst with Integral Asset Management.

Ultimately, the government may find its hands tied in trying to stop a deal going ahead, analysts suggested.

“You can bet the government is going to get on a soapbox, but they’re going to find out how little control they have over this,” said Major. “And that’s a product of their own making.”

Big asset managers adopt ‘vulture’ tactics in distressed debt fights

Loosening credit agreements mean traditional investors who once could avoid messy legal battles are having to evolve

When Invesco bought the largest chunk of $620mn of apparently low-risk loans issued by heater and air conditioner parts maker Robertshaw in 2018, it seemed just like many investments the US asset manager had made before.

As a traditional, mainstream investor, Invesco was looking for debt that was likely to be repaid in full, or “par”, at maturity while also delivering an attractive coupon — unlike the more aggressive “vulture” investors that typically buy debt at knockdown prices with the intention of getting involved in complex legal fights.

But six years later, Invesco is now the central player in one of the ugliest distressed debt brawls in recent memory, already featuring in four different lawsuits in Texas and New York. 

In one complaint, filed jointly by Robertshaw’s private equity owner One Rock and creditors formerly allied with Invesco, the asset manager has been accused of attempting to “force Robertshaw into a rushed Chapter 11 [bankruptcy] filing” and “taking advantage of Robertshaw’s sensitive financial condition to enhance its own returns”.

Feuding among claimants in troubled companies is not new. But market participants note a crucial shift in distressed debt restructurings in recent years, with even the most senior lenders — who were historically able to avoid the brutal battles waged between private equity firms and junk bondholders beneath them — now being dragged into the fray to knock heads with other lender brethren.

With lowly rated, highly leveraged companies under pressure from high interest rates, and loan recoveries falling, traditional asset managers such as Invesco are now using tactics similar to conventional distressed debt specialists such as Apollo and Elliott Management. Traditional managers argue they have no choice but to act defensively in such situations as a duty to their clients.

“Unlike opportunistic credit funds, which intentionally acquire debt after it already has traded at a substantial discount, par holders encounter distressed situations by accident,” said Vincent Indelicato, a law partner at Proskauer Rose, where he runs the restructuring practice. 

“They have realised that, unless they have a seat at the table, they will find themselves on the menu.”

According to S&P Global Ratings, average discounted loan recoveries for 2022 to 2023 were just 61.5 cents on the dollar, nearly 12 percentage points below their long-term average to the end of September.

After struggling in the wake of the coronavirus pandemic due to supply chain disruptions and rising operating costs, Robertshaw was able to raise nearly $100mn in fresh debt through a new loan last spring.

Four firms — Invesco, Bain Capital, Canyon Capital and Eaton Vance — provided the new money. But in exchange, they swapped existing loans worth more than $400mn into a senior priority position — known as an “uptier exchange” — seizing the senior claim on Robertshaw’s collateral and leaving behind a minority of existing lenders. 

Guardian Life Insurance, a lender that owned Robertshaw loans through a so-called collateralised loan obligation, sued the company and the Invesco-led group of lenders in New York state court, arguing that the debt’s legal documents precluded Guardian Life from being pushed down the pecking order.

But as Guardian Life’s lawsuit made its way through court last year, Robertshaw’s struggling operations forced it to seek more cash.

At the same time, the alliance between Invesco, the three other lenders and Robertshaw fully disintegrated. 

Invesco bought up a majority stake across two Robertshaw loan tranches. By late autumn, the fund manager began to assert its power, attempting to force the company to restructure its debt on Invesco’s preferred terms. 

“Invesco worked tirelessly to garner these rights in respect of the company. It sponsored a series of financing transactions designed to keep the company afloat,” the asset manager wrote in court papers citing its “good faith”.

Robertshaw, however, took the opposite view in its filing, writing that it “became clear that Invesco abandoned any pretence of good faith negotiations over any solution other than a Chapter 11 filing”, in which the company said Invesco would seize ownership.

In December, the plot thickened even further. Robertshaw teamed up with Bain, Canyon and Eaton Vance — the three investors that only months earlier had been teammates of Invesco — to neutralise the lead fund manager.

The three lenders and the company assembled a complex financing where they exercised their right to repurchase at a premium the loans held by Invesco, in effect removing the investor against its will from the Robertshaw situation.

Invesco responded by suing the company and the three investors in a New York state court, calling the financing that pushed it out a “sham” that violated the loan contract.

In February, Robertshaw filed for bankruptcy in a Texas federal court with the support of Bain, Canyon and Eaton Vance. It immediately sued both Guardian Life and Invesco in the bankruptcy court to validate the May 2023 and December 2023 financings as above board and not violating the loan contract terms, as Guardian Life and Invesco asserted.

Robertshaw and Guardian Life settled their litigation last month.

Robertshaw, One Rock, Bain, Canyon, Eaton Vance, Guardian Life and Invesco declined to comment.

When interest rates were ultra-low and financing was easier to come by, companies and private equity sponsors were able to negotiate looser credit agreements, giving borrowers flexibility for future manoeuvring. The period of cheap money also fuelled a borrowing frenzy, with buyout firms loading businesses up with low-quality debt.

Market participants say the tactics now being used by creditors in several recent distressed situations are a result of such a degradation of protections offered to investors in debt documents.

“This is Darwinism, right, you have to evolve,” said one portfolio manager. “The market is changing, the game is changing.”

Central bank resists pressure to tighten policy despite currency weakness pushing up inflation

The yen fell to a new 34-year low on Friday after the Bank of Japan held interest rates near zero, despite rising pressure on the central bank to tighten its policy to prop up the currency.

The Japanese currency fell to ¥156.13 against the dollar after the BoJ unanimously agreed to continue guiding its overnight interest rate within a range of about zero to 0.1 per cent. 

In March, the central bank ended its negative interest rate policy, raising borrowing costs for the first time since 2007. 

In the wake of this historic shift to end its ultra-loose monetary policy, governor Kazuo Ueda has indicated he would like to move gradually to raise rates. But his position has been complicated by the yen’s depreciation and signs that the US Federal Reserve will keep interest rates high to tame inflation.

 “It is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices,” the BoJ said in a statement on Friday.

The central bank on Friday also forecast core inflation, which excludes volatile food prices, would remain above or near its 2 per cent target for the next three years. It made no change to its plan to continue buying Japanese government bonds.

The BoJ has long struggled to maintain price rises at sustainable levels to keep the economy out of deflation. While domestic consumption remains weak, the falling yen is expected to fuel inflation in the months ahead by increasing the cost of imported goods.

Analysts expect the BoJ to raise rates in July at the earliest if the bank confirms increases in service inflation and real wages, which would help boost consumption.

“Markets remain on high alert for any indication of whether the yen’s current weakness will be interpreted as a lasting inflationary signal and invite more hawkish rhetoric from the central bank,” said Naomi Fink, global strategist at Nikko Asset Management. “The BoJ however is likelier to find any knock-on impact from yen weakness upon inflation as more concerning than short-term currency moves.”

The yen held steady at about ¥155.55 a dollar in morning trading but weakened sharply within 10 minutes of the BoJ’s announcement to leave policy unchanged. Traders had resumed bets that the US-Japan rate differential would continue to apply downward pressure on the Japanese currency.

The Nikkei 225 index briefly rose more than 1 per cent after the announcement.

Despite what many market participants see as a rising risk of direct intervention by the Japanese authorities to support the yen, analysts said the currency’s drop on Friday made sense, as the BoJ refrained from any sort of hawkish surprise.

“Ueda will have his work cut out for him at the press conference [on Friday afternoon] to avoid further yen decline,” said Benjamin Shatil, senior Japan economist at JPMorgan.

Stripe, the fintech giant, continues to inch its way back into the cryptocurrency market. On Thursday the company announced that it would let customers accept cryptocurrency payments, starting with just one currency in particular, USDC stablecoins, initially only on Solana, Ethereum and Polygon. This will be the first time that Stripe has taken crypto payments since 2018, when it dropped support for Bitcoin due to it being too unstable.

Stripe in 2022 tried its first reentry into the crypto market when it announced payouts (but not payments) in USDC, with Twitter as its marquee customer for the service. Thursday’s news has no customer names attached to it.

Stripe co-founder and president John Collison is due to announce the news at the company’s Connect developer conference taking place this week in San Francisco.

“Transaction settlements are no longer comparable with Christopher Nolan films for length,” he said earlier Thursday. “And transaction costs are no longer comparable with Christopher Nolan films for budget. Stripe is bringing back crypto payments — this time with stablecoins, which are a way better experience.”

On Wednesday the company unveiled a long list of other launches, the most significant update being that Stripe, for the very first time, would let customers integrate competing payment providers with Stripe’s other financial services tooling. Thursday’s nod to expanding crypto support is also part of that bigger strategy to open up its walled garden.

A brief timeline of Stripe’s dance with crypto underscores the tricky line that Stripe has walked over the years when it comes to cryptocurrency. True to its disruptive roots as a fintech, the company has wanted to be in the middle of the conversation around how blockchain-based technologies will affect financial services. But it runs the risk of subverting its bigger business and positioning as a stable and sensible financial powerhouse if it dabbles too deeply or for too long in periods of instability. The company processed $1 trillion in transactions last year, and it’s still growing; it is currently worth $65 billion on paper.

Soon-to-launch venture marks bond pioneer’s third attempt to break stranglehold of Chicago’s CME

Goldman Sachs and Citadel Securities are among a group of 10 large trading groups backing bond pioneer Howard Lutnick’s renewed tilt on CME’s monopoly on the US Treasury futures market.

The 10 investment banks and proprietary traders are investing a combined $172mn for a 26 per cent stake in Lutnick’s venture, called FMX. The investment will give FMX a valuation of $667mn.

September’s planned launch of futures trading on FMX will mark a third attempt by the Cantor Fitzgerald chair to break the stranglehold of Chicago’s CME Group over the vast Treasury futures market.

Lutnick, who helped usher in electronic government bond trading in the late 1990s, has called CME’s dominance of Treasury futures “one of the great monopolies in America”. Last year, the market traded about $645bn a day.

Futures trading has boomed in recent years as rising US government borrowing has boosted the supply of bonds and leveraged investors have increasingly traded the so-called “basis” to profit from the tiny gaps between futures prices and those of the underlying bonds. 

Bank of America, Barclays, Citigroup, Jump Trading, JPMorgan Chase, Morgan Stanley, Tower Research Capital and Wells Fargo are also investing in FMX.

“We offered ownership to this incredible investment group knowing the enormous value they bring to FMX, which will benefit all market participants,” said Lutnick.

FMX is part of brokerage BGC Group, of which Lutnick is chair and chief executive. The platform already trades currencies and cash Treasuries and in January received regulatory approval to trade futures.

FMX has in recent years made inroads into the exchange traded market for Treasuries, taking a 28 per cent market share, largely at the expense of CME’s BrokerTec, the market leader.

Citadel Securities was a supporter of Lutnick’s last attempt to take on the CME in 2007, which failed partly because the venture lost its planned clearing partner. Before that, he had tried in 1998 in partnership with the New York Board of Trade. 

FMX’s futures trades will be cleared by LCH, the clearing house controlled by the London Stock Exchange Group.

On an earnings call on Wednesday, CME chief executive Terry Duffy said his exchange was “in a good position” to compete.

“I have sat here for 22 years as the chair and CEO of this company since we went public and I’ve seen nothing but competition. So this is no different. I take every single bit of competition seriously,” he added. 

League is advancing toward lucrative deals with incumbent partners and is in talks with tech giants as well as NBCUniversal

The National Basketball Association is advancing toward a series of major media deals, with Amazon AMZN -2.11%decrease; red down pointing triangle and Google’s YouTube vying for a new streaming package and NBCUniversal trying to grab one of the main TV deals held by Disney’s DIS -1.27%decrease; red down pointing triangle ESPN and Warner Bros. Discovery’s WBD -2.73%decrease; red down pointing triangle TNT.

Interest is high in the league’s next round of packages, which kick in after the 2024-2025 season. Disney, which pays around $1.6 billion a year for TV rights, and Warner, which pays about $1.2 billion a year, are in discussions to pay substantial increases under a new pact, while airing fewer games than they do now, say people familiar with the conversations.

The robust pricing expected in the deals shows how valuable live sports are to traditional media companies at a time when cord-cutting is shrinking overall TV viewership. Many households maintain cable subscriptions because it is the only way to watch their favorite teams’ games.

Media-rights talks have been happening against the backdrop of the NBA playoffs. Warner Chief David Zaslav sat courtside Monday to watch the New York Knicks prevail in the final seconds against the Philadelphia 76ers, a game that aired on TNT. An exclusive negotiating window for Disney and Warner to renew their deals expired at midnight the same night, clearing the way for the league to have formal negotiations with other suitors as well.

Under their current deals, Disney and Warner carry roughly 165 games combined. Games taken from those incumbents would help the NBA create a new package for a streaming player with nationally televised regular-season games and some playoff contests. The league also could draw on a catalog of locally aired games.

Amazon’s Prime Video, which airs NFL games, has been aggressive in pursuing the streaming package and is viewed by league and media executives as the front-runner. YouTube is also in the mix, those executives say. The streaming package would give a tech giant the right to show games in markets around the world.

Among traditional media companies, NBCUniversal is jostling with Disney and Warner for a package. It is angling for regular-season and playoff games to show on NBC and its Peacock streaming service, as well as rights for NBC to share the NBA Finals with Disney’s ABC, according to some people familiar with the discussions.

Warner Discovery and Disney also have the right to match other offers, people with knowledge of the pacts said. The new deals could include language and terms that would potentially make enforcing a matching right clause challenging.

The NBA discussions are fluid; negotiations with a streamer like Amazon could impact the way final deals are structured with TV partners, for example. Wrapping up and announcing all the deals could take several weeks.

In negotiating new long-term pacts, NBA Commissioner Adam Silver has said the league wants to significantly increase the scale of its rights deals and broaden the ways fans can watch games around the world. It is a strategy the NFL has also pursued, increasing rights fees from its incumbent media partners and crafting new agreements such as its deal with Amazon for “Thursday Night Football.”

Amazon, YouTube and NBCUniversal have invested in sports to boost their respective streaming services.

Retaining NBA rights is a high priority for both Disney and Warner. The league’s content helps them charge high fees to pay-TV distributors like Comcast and Spectrum to carry networks such as ESPN, ABC and TNT.

“What is the alternative programming you would replace those prime-time hours with,” said David Levy, a former Turner president who is now co-chief executive of the advisory firm Horizon Sports & Experiences.

Most scripted shows fail and the cost to market them isn’t cheap, he added. With sports, there is a “built-in fan base and you know pretty closely how the games are going to rate,” he said.

Securing the rights could help Disney and Warner with their respective streaming initiatives. ESPN is launching its own direct-to-consumer version of its popular cable channel and will want NBA games to help drive subscriptions.

Warner and Disney are joining with Fox Corp.on a new sports-centric streaming service set to launch in the late summer or early fall. Having a big chunk of NBA regular and postseason action is expected to be a major selling point for the as-yet unnamed platform.

Some on Wall Street have expressed concerns about media giants’ “sports at any cost” approach. Wolfe Research analyst Peter Supino downgraded Warner Discovery stock to underperform this week, citing the likely cost of a new NBA deal as a factor.